I'm the Contributing Editor, Investigations, for Forbes magazine—and writing a book about Bernie Madoff, to be published by Simon & Schuster. From 1982-2004: Staffs of Forbes, Time and Fortune magazines. Projects for BBC News, CNN, Fast Company, FoxNews.com and PBS. In 2005, launched Project Klebnikov, a global media alliance committed to shedding light on the Moscow murder of Forbes editor Paul Klebnikov and to furthering the investigative work that Paul began there. More than 20 journalism awards, including the George Polk (twice); Overseas Press Club (twice); Gerald Loeb; National Magazine Award; Daniel Pearl; Worth Bingham; Conscience-in-Media Award; and Top 100 Business News Luminaries of 20th century. Not doing cartwheels over the current state of investigative journalism, but I'm an eternal optimist.
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World Bank Mired In Dysfunction: Mess Awaits New Head

It’s presidential inauguration time in Washington. Not for the person who will helm the federal government–that comes in six months–but instead for Dr. Jim Yong Kim, the man taking the reins of an organization even more lumbering, and far less accountable: the World Bank.

With 188 member countries and an army of 9,000 employees and consultants, Kim will lead one of the world’s most powerful institutions–charged with saving the world’s poor–but also one of its most dysfunctional. It is an endlessly expanding virtual nation-state with supranational powers, a 2011 aid portfolio of $57 billion and little oversight by the governments that fund it. And–according to dozens of interviews over the past few weeks, atop hundreds more over the past five years, plus a review of thousands of pages of internal documents– problems have gotten worse, not better, at the World Bank despite more than a decade of reform attempts. Kim, the Dartmouth College president tapped by President Obama to lead the bank, stands little chance of fixing things, say insiders, unless he is prepared to completely revamp the current system. “The inmates are running the asylum,” says a former director.

Part of the problem is philosophical: No one, starting with outgoing president Robert Zoellick, has laid out an articulated vision for what the World Bank’s role is in the 21st century. For example, economic superpower China remains one of the bank’s largest and most valued clients, even as it doles out development money to other countries and bullies the bank from aggressively investigating corruption.

Part of the problem is structural: Internal reports, reviewed by FORBES, show, for example, that even after Zoellick implemented a budget freeze some officials operated an off-budget system that defies cost control, while others used revolving doors to game the system to make fortunes for themselves or enhance their positions within the bank. Why not track all the cash? Good luck: Bank sources cite up to $2 billion that may have gone unaccounted for recently amid computer glitches.

Sadly, the last part is cultural: The bank, those inside and outside it say, is so obsessed with reputational risk that it reflexively covers up anything that could appear negative, rather than address it. Whistle-blower witch hunts (see box, p. 92) undermine the one sure way to root out problems at a Washington headquarters dominated by fearful yes-men and yes-women, who–wary of a quick expulsion back to their own countries– rarely offer their true opinions.

Zoellick declined to speak with FORBES for this piece, though that’s not surprising. I’ve covered the bank for the past five years and have been ritually denied access to anyone in a mid-to-top-level post. The blockade ended just before FORBES went to press, when the bank conducted a carefully monitored conference call with two staffers who run the global “Open Data” initiative. The bank’s media relations spokesman was permitted to be quoted by name. That this is considered openness epitomizes the problems that Kim now inherits.

Like most out-of-control bureaucracies, the World Bank started with lofty and idealistic goals. Facing a planet in ruins near the end of World War II, it was created along with the International Monetary Fund at a conference of leading Western economists ­trying to find ways to address the economic instabilities that they believed led to war–and to guarantee it would never happen again.

Having successfully helped rebuild Europe and Japan, the World Bank eventually expanded into a truly global agency, notably in the 1970s under the leadership of Robert McNamara, who took on the goal of a poverty-free planet in his search for redemption after his role in the Vietnam War. Donor nations fund the bank with billions of dollars annually, which it then doles out to fight poverty worldwide.

In terms of its governance, the World Bank has always operated under a gentleman’s agreement that allows the U.S.–its largest shareholder with 16% of the vote–to pick its president, while the other 187 member-governments flow into a 25-member board. The process for its funding, grants and loans is absurdly complicated, but in essence it combines capital from its donor ­countries, plus self-generated income through the sale of bonds. While often confused with the IMF, which provides financial stability to governments, the World Bank’s role is at least supposed to be only development projects–like building dams, roads, schools, even fish farms–although it has muddied those boundaries over the last 20 years. Unlike the IMF, the bank deals with both the public and private sectors, and as the number of projects and amounts of money have escalated, so has the mischief, corruption and cover-ups, since no agency has the power to audit them.

In 2005 George W. Bush tapped Paul Wolfowitz as president to clean the place up. To his credit, Wolfowitz made rooting out corruption his primary mission. But the former Pentagon official also came in like an occupying power. According to internal documents obtained by FORBES, the board and Wolfowitz engaged in a game of trench warfare so vicious that the minutes of some board meetings had to be sanitized to keep the world from knowing what was really going on.

Perhaps Wolfowitz’s heavy-handed style would have eventually paid dividends. He did, after all, declare war on the bureaucracy. But he also fell prey to the insular culture, giving his girlfriend at the bank special considerations that undercut his credibility and led to his resignation.

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As Head of the Global Partnership for Education (GPE), I would like to set the record straight regarding this article’s mention of Luis Crouch, an internationally respected education expert who has worked for GPE since March 2011. At no time during his tenure here has Mr. Crouch approved an expenditure or contract for RTI, his former employer, and he has carefully recused himself from any actual or potential conflict of interest.

GPE provides approximately $400 million per year to school systems in low-income countries, and we work separately from the World Bank, which has just one of the 19 seats on our Board of Directors. Our Board Members include 6 donor governments, 6 developing-country governments, 3 NGOs/Civil Society Organizations (including teachers), 1 representative of private sector firms and foundations, UNESCO, UNICEF, and one representative from the World Bank Group.

Our partners help children in 46 of the poorest countries of the world to gain access to a good quality education. Over the past 10 years GPE has helped educate an additional 19 million students, construct 30,000 classrooms, train nearly 350,000 teachers and distribute 200 million new textbooks in primary schools.

We hope that Forbes will correct the record in this matter and highlight the outstanding work our partners have done over the past decade to help millions of children learn and grow.

Thanks for your note, Mr. Prouty. You should know that I offered Mr. Crouch an opportunity to comment on the conflict of interest allegations prior to publication of this piece. He advised me that only the World Bank’s spokespeople could comment on those allegations. They declined to do so.

Well, what a wonderfully artful and economically brief comment by Mr. Prouty, and, below that, comments whistled up from some RTI officials, plus the usual World Bank flak par for the course comment. The issue clearly is not possible conflicts of interest since Mr. Crouch joined FTI, one would hope, but the history BEFORE he joined FTI between FTI and GPE/FTI! ….and the future relationships between RTI and this troubled trust fund of the World Bank That’s Mr. Behar’s point of course. It is well known that GPE’s mission is good but its internal disfunction and leadership are hugely in question both within the World Bank and outside it! Fair comment in the public interest, Mr. Behar. Keep it up.

Mr. Behar has left out how the Bush Administration attempted to prevent Paul Wolfowitz’ resignation from the presidency of the World Bank by threatening to reveal sensitive information about the Executive Directors on the Board. Herman Wijffels, the Dutch Executive Director at the World Bank, led the Board’s inquiry into illegal pay raises to Wolfowitz’ romantic interest, Shaha Riza. Riza, who worked at the World Bank prior to Wolfowitz’ appointment, received a 35% raise just months after Wolfowitz assumed the presidency of the World Bank. Wijffels reported, “There was digging into my past in a shocking manner. In my case there was nothing to find. Very clear efforts to disqualify my fellow Directors led to consternation.” I am a Yale Law educated lawyer and University of Amsterdam educated economist who worked in the World Bank’s legal department for 20 years. I reported to the Senate Committee on Foreign Relations, then chaired by Vice President Joe Biden, the risks to the reputation of the United States. Robert Zoellick fired me in retaliation in 2007. I also reported the corrupt take-over of Philippines National Bank, the second largest bank in the Philippines. Lucio Tan, a crony of then-President of the Philippines Joseph Estrada, acquired stock owned by government employees in Philippines National Bank in violation of Philippines securities laws. Tan owned Philippines Airlines, in default on its loans from PNB. The government of the Philippines loaned $493 million to PNB after PNB’s depositors made heavy withdrawals. $200 million from a World Bank loan and $200 million from a Japanese loan was cancelled. Estrada was ultimately impeached, and in 2007 an anti-corruption court in the Philippines required Estrada to refund graft he had plundered. The World Bank’s Country Director in the Philippines reassigned me when I asked him to warn the Philippines’ government that the World Bank could not disburse its loan. The World Bank’s Internal Audit Department refused to correct the satisfactory evaluation of the World Bank’s supervision performance or the flawed report of the Institutional Integrity Department to the Audit Committee of the Board of Executive Directors. The Audit Committee requested an inquiry into the Institutional Integrity Department. The Paul Volcker Panel investigation into the Institutional Integrity Department was discredited after “deliberate and substantial interference with this supposedly independent commission” came to light. http://www.commondreams.org/newswire/2010/04/06-3 The World Bank stonewalled four letters from Congress into my disclosures. The World Bank also stonewalled a Government Accountability Office inquiry into transparency at the World Bank requested by Senators Richard Lugar, Evan Bayh, and Patrick Leahy. http://citizenoversight.com/pdf/blwb.pdf I warned the Joint Economic Committee an accurate political science stakeholder analysis was predicting that without rule of law at the World Bank the United States would lose the Gentlemen’s Agreement for the US to appoint the president of the World Bank The analysis uses modern game theory to simulate a bargaining process among stakeholders and is 90% accurate. The 187 member countries of the World Bank rescinded the 66 year old Gentlemen’s Agreement in 2010. http://www.imf.org/external/np/cm/2010/042510.htm The World Bank’s Board of Executive Directors selected Dr. Kim as the World Bank’s president from a field of three nominees, including Nigeria’s Finance Minister, Ngozi Okonjo Iweala and Colombia’s former Finance Minister, Jose Antonio Ocampo. The US Congress is requiring results that eliminate retaliation against whistleblowers in the 2012 appropriations legislation for the World Bank capital increase. You can read more about my whistleblower retaliation case in the US Court of Appeals, DC Circuit at www.kahudes.net

Although I cannot speak to the entirety of the article’s contents, the reference to our organization, Research Triangle Institute, is inaccurate.

Citing an anonymous source, the writer implies that a person on leave from our organization has used his position at the World Bank to steer contract awards to us. The person on leave from our organization makes no decisions regarding any funding of our organization.

I would ask that you remove this inaccurate statement from the magazine article before it is printed in your July issue and that you also correct the online version.

If a Nobel price were given for public relations, the World Bank would win it. Mr. Zoellick’s great success was to refashion a somewhat graceless organization into the meanest public relations machine. The most important career track of the World Bank is “communications”. Half the operations staff can be safely eliminated, because PR staff will concoct project successes on demand. The websites show impressive studies and wonderful news about communities, etc. Those who look closer find a different reality. But even the Independent Evaluation Group that is supposed to evaluate projects independently knows to maintain discretion. After all, it also consists of staff who worry about their jobs.

Since communications officers can manage perceptions effectively, effective managers are not really needed. The trend has been to appoint figurehead types who blindly do what their superiors want. So the Bank has a long line of vision-impaired managers all the way to the top. It’s a pity, because the world does need an institution that actually promotes anticorruption and governance rather than just conduct workshops about the topic and then look the other way. Hopefully the new president will do more than what his “communications” handlers advise.

“It’s a pity, because the world does need an institution that actually promotes anticorruption and governance rather than just conduct workshops about the topic and then look the other way.”

As someone on the front line of the Bank’s work – managing investment projects in developing countries – I have to strongly disagree with this statement.

While there is no denying that there are a number of institutional challenges the Bank faces, at the same time those of us in operations are committed to making the best possible impact we can for our clients.

Ensuring that we fulfill our fiduciary duty is small part of this. We take the issue of corruption very seriously and do what we can to eliminate it on our projects. No, we are not always 100% successful – it is often endemic: just look at where most of our countries sit on the TI scale of corruption – but I do not know any of my colleagues who do not use all of the avenues open to us to minimize the impact on our projects. I personally travel over 120 days a year to the field to ensure that the projects I am responsible for are being implemented appropriately.

I do not know any other development institution that takes the issues of corruption and governance so seriously, nor of staff who are as committed as we are.

It’s disappointing that Forbes has decided to publish an article that distorts facts and asserts untrue and misleading claims. We have posted a fact sheet “Setting the Record Straight” to rebut false assertions and outline important facts about the Bank’s budget, anti-corruption work, management, accountability, and other issues.